WSJ: SEC Probing Falcone’s Harbinger For Letting GS Cash Out

By Murray Coleman

Hedgie Philip Falcone and his Harbinger Capital Partners are facing possible civil fraud charges from the SEC for allowing some investors — including Goldman Sachs (GS) — to cash out their holdings while barring other clients from withdrawing their money, Dow Jones Newswires reports.

In a regulatory filing today, Harbinger said it is “disappointed” with the issuance of SEC’s notices of possible litigation, and the firm said it strongly disagrees there had been violation of federal securities laws.

Harbinger Group disclosed in March that the SEC was investigating possible market manipulation activities with respect to the trading of debt securities in a particular issuer in 2006 to 2008 and a loan Falcone took out from his fund in October 2009. On Friday, the hedge fund firm disclosed another issue.

The WSJ is reporting that the additional matter involves whether Harbinger improperly let some clients trade in their accounts more freely than others. Sources told the paper that in 2009, Harbinger told Goldman it could redeem $50 million from its funds. At the time, most other investors were barred from pulling out.

Last year, the WSJ reported that regulators were looking into whether Harbinger misled investors by failing to disclose in a timely fashion a $113 million personal loan it extended to Falcone from the firm’s funds. But that loan was believed to have been repaid by the end of 2010.

Harbinger Capital used to manage more than $26 billion in assets. But investment losses, withdrawls by clients and a shifting focus has led to its current asset base of around $5.7 billion, according to Dow Jones. Meanwhile, Falcone has remained one of the hedge fund industries most well-known names. At a recent industry conference, he told investors that he was still high on Spectrum Brands (SPB) and sees a shift in the way consumers are behaving.

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